Lloyds Banking Group (LON:LLOY) reportedly assisted former directors of a company linked to fraud at the bank’s HBOS Reading branch to buy a valuable asset at a substantial discount.
The lender became the main creditor of private jet chartering company, Corporate Jet Services (CJS), after rescuing HBOS during the financial crisis.
Lloyds then offloaded CJS’s German aerospace subsidiary, 328 Support Services, for £5mln in July 2011 to Quest Aviation Services. Quest was owned by former CJS directors, including David Mills - a consultant who was jailed this year for his role in the HBOS fraud, according to a 2008 memorandum published by the Financial Times (FT).
The selling price of 328 marked a significant discount to the US$47.5mln CJS paid for its prime asset. It was also below the £23mln fair valued listed in the company’s accounts.
HBOS Reading fraud woes deepen for Lloyds...
Mills, who owned one quarter of Quest, was found guilty of conspiring with a senior HBOS employee in Reading to siphon off money from struggling businesses to fund lavish holidays.
Mills and former directors of CJS are likely to have made millions after Quest sold 328 for an undisclosed sum to Sierra Nevada Corporation, a private US aerospace company, in 2015. PwC had valued the business at just over one times operating profit in the year Lloyds sold the business to Quest, according to accounts filed at Companies House.
The FT reported that internal HBOS documents showed that CJS received a takeover bid for 328 in March 2007 from Indian company, Sobha, for US$75mln. The offer came shortly before CJS collapsed the same year, owing £113mln to HBOS in contentious circumstances.
Lloyds' handling of CJS rescue raises questions...
The police are investigating the circumstances of the insolvency of CJS. Lloyds’ decision to sell 328 for £5mln is likely to raise questions about the bank’s handling of CJS’s collapse.
“There would seem to be some serious questions that need asking,” said Anthony Stansfeld, the police and crime commissioner for the Thames Valley police.
“Especially as one of the major shareholders of the company it was sold to was known by (the bank’s) senior management to be under investigation for involvement in a major fraud within the bank; a fraud for which he was subsequently given a long prison sentence.”
Lloyds pointed the finger at PwC, saying it was instructed to help CJS find buyers for its subsidiaries and was responsible for the sale.
Quest snapped up most of CJS’s subsidiaries for just £50,000. It was also given a €10mln option to buy 328 through an accelerated sale process approved by Lloyds and managed by PwC, though Quest failed to exercise the option.
PwC justified the disposals by the weak financial state of CJS, telling the FT that “this structure enabled us to realise best value”.
Lloyds sets aside compensation for HBOS fraud victims...
Lloyds has set aside a £100mln pot in compensation for the 64 victims in the HBOS Reading fraud.
Among the victims is TV star Noel Edmonds, who has crticised Lloyds for taking too long in making compensation payments.
Lloyds has said it will make compensation payments to victims by the end of June. The fraud took place between 2003 and 2007 before Lloyds rescued HBOS in 2009 during the financial crisis.
Six people were jailed earlier this year over the case, which is estimated to have cost victims £245mln.